The long shadow of the wall on Europe's economy. CEPS Commentaries, 13 November 2009

Abstract

To mark the 20th anniversary of the fall of the Berlin wall, CEPS Director Daniel Gros offers his views on the economic consequences of German unification for Europe’s economy. He argues that the way in which unification was handled led not only a boom in Germany, but also to upheaval in the European Monetary System, which essentially fell apart between 1992 and 1995. After 1995, the tables were turned and the traditional pattern returned whereby domestic demand became weak (and remained persistently so) in Germany, but domestic demand (both in terms of consumption and construction) took off in the rest of Europe. Thus, those who predicted that unification would drastically alter the balance of economic power in Europe seemed for a time vindicated, but twenty years later it appears that the status quo ante has been re-established.